Currently, IFRS provides guidance on fair value measurement
across many standards. Some standards contain limited guidance
on the subject while others contain extensive guidance that has
not always been consistent.

This is all about to change with the issuing of IFRS 13 Fair
Value Measurement (IFRS 13) by the International Accounting
Standards Board in May 2011. The new standard is effective for
years beginning on or after from January 1, 2013 and not only
applies to items measured at fair value in the primary statements,
but also to items that are fair valued for disclosure purposes only.

IFRS 13 provides a new definition of fair value and a
single source of guidance for the large majority of all fair value
measurements used in IFRS financial statements. In some
cases, the new standard will lead to a different measure of fair
value which could require different procedures to calculate it. In
addition, new disclosure requirements are introduced resulting
in new information needs. Overall, the new rules could have a
material effect on valuations and result in additional operating
costs to gather information and demonstrate compliance.

What’s important for EMDs to know?

Some of the areas that will have the most impact on EMDs
are as follows:

Valuing quoted financial instruments

When valuing financial instruments, IFRS gives priority to
observable quoted prices as they are considered to be the best
indicator of the exit value for an asset or a liability. Under the
current IAS 39, an entity is required to use the bid price for an
asset and the ask price for a liability and can only use the mid
price for offsetting positions in the same market risk. IFRS 13
requires that the entity use the price within the bid-ask spread
that is “most representative” of fair value. The use of bid prices for
asset positions and ask prices for liability positions is permitted,
but is not required. As a result there could be a range of quoted
prices within the bid-ask spread that could be allowed for use
in the fair value calculation, and as such should be given some
careful consideration.